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Wednesday, February 17, 2016

Interest Rates of Small Saving Schemes w.e.f. 01.04.2016

Interest
Rates of Small Saving Schemes to be recalibrated w.e.f.
01.04.2016

Interest Rates of Small Saving Schemes to be recalibrated w.e.f. 1.4.2016 on a
Quarterly Basis to align the small saving interest rates with the market rates
of the relevant Government securities;

Interest rate on savings schemes based on laudable Social Development or Social
Security Goals including Sukanya Samriddhi Yojana, the Senior Citizen Savings
Scheme and the Monthly Income Scheme left untouched by the
Government.

The
National Savings Schemes (NSSs) regulated by the Ministry of Finance offer
complete security of investment combined with high attractive returns. These
schemes also act as instruments of financial inclusion especially in the
geographically inaccessible areas due to their implementation primarily through
the Post Offices, which have reach far and
wide.

The small savings interest rates are perceived to limit the banking sector’s
ability to lower deposit rates in response to the monetary policy of the Reserve
Bank of India. In the context of easing the transmission of the lower interest
rates in the economy, the Government also has to take a comprehensive view on
the social goals of certain National Small Savings Schemes. Accordingly, it has
been decided that the following shall be implemented with effect from 1.4.2016
with regard to National Savings Schemes:

1. The Sukanya Samriddhi Yojana, the Senior Citizen Savings Scheme and the
Monthly Income Scheme are savings schemes based on laudable social development
or social security goals. Hence, the interest rate and spread that these
schemes enjoy over the G-sec rate of comparable maturity viz., of 75 bps, 100
bps and 25 bps respectively have been left untouched by the
Government.

2.
Similarly the spread of 25 bps that long term instruments, such as the 5 yr Term
Deposit, 5 year National Saving Certificates and Public Provident Fund (PPF)
currently enjoy over G-Sec of comparable maturity, have been left untouched as
these schemes are particularly relevant to the self-employed professional and
salaried classes. This will encourage long term
savings.

3.
The 25 bps spread that 1 yr., 2yr. and 3 yr. term deposits, KVPs and 5 yr
Recurring Deposits have over comparable tenure Government securities, shall
stand removed w.e.f. April 1, 2016 to make them closer in interest rates to the
similar instruments of the banking sector. This is expected to help the economy
move to a lower overall interest rate regime eventually and thereby help all,
particularly low-income and salaried classes.

4.
The interest rates of all small saving schemes would be recalibrated w.e.f.
1.4.2016 on a quarterly basis as given under, to align the small saving interest
rates with the market rates of the relevant Government
securities;

Sr.
No.

Quarter
for which rate of interest would be
effective

Date
on which the revision would be notified

Rate
of interest to be based on FIMMDA month end G-Sec. rate pertaining
to

1.

April
to June

15th March

Dec.-Jan.-Feb.

2.

July
to September

15th June

Mar.-Apr.-May.

3.

October
to December

15th September

Jun.-Jul.-Aug.

4.

January
to March

15th December

Sep.-Oct.-Nov.

5.
The compounding of interest which is biannual in the case of 10 yr National
Saving Certificate (discontinued since 20-12-2015), 5 yr National Saving
Certificate and Kisan Vikas Patra, shall be done on an annual basis from
1.4.16.

6. Premature closure of PPF accounts shall be permitted in genuine cases,
such as cases of serious ailment, higher education of children etc,. This shall
be permitted with a penalty of 1% reduction in interest payable on the whole
deposit and only for the accounts having completed five years from the date of
opening.

7.
In pursuance to the decision as mentioned in Para 4 above, the rates of
interest applicable on various small savings schemes for the quarter from April
to June 2016 effective from 1.4.2016 would be notified in March,
2016.

The above changes have been brought with the objective of making the
operation of National Saving Schemes market-oriented in the interest of overall
economic growth of the country, even while protecting their social objectives
and promoting long term savings.

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